If projects are mutually exclusive, only one project can be chosen. The internal rate of return (IRR) and the net present value (NPV) methods will not always choose the same project. If the crossover rate on the NPW profile is below the horizontal axis, the methods will agree. Always Projects W and X are mutually exclusive projects. Their cash flows and NPW profiles are shown as follows. Sometimes Never Year Project w -$1,000 $200 1 Project X -$1,500 $350 $500 $600 $350 2 3 3400 $600 $750 NPV Dollar 800 Project 400 Project 200 0 -200 24 10 12 14 16 18 20 COST OF CAPITAL, I Percent If the weighted average cost of capital (WACC) for each project is 18%, do the NPV and IRR methods agree or conflict The methods agree. O The methods conflict. When there is a conflict, a key to resolving this it is the assumed reinvestment rate. The IRR calculation assumes that intermediate cash flows are reinvested at the IRR, MIRR, Required rate of Return and the NPV calculation implicitly assumes that the rate at which cash flows can be reinvested is the IRR, MIRR, Required rate of return As a result, when evaluating mutually exclusive projects, the IRR Method is usually the better decision criterion. NPV Method